Apyx Medical Corporation — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023. Unaudited results; comparisons are with the corresponding 2022 periods. Apyx develops and sells Helium Plasma Technology products, including Renuvion and J-Plasma, and provides OEM products and services.
Financial results
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Sales | $13.6 million | $10.3 million | $25.7 million | $22.8 million |
| Gross profit | $9.3 million | $6.9 million | $16.9 million | $15.1 million |
| Gross margin | 68.4% | 67.2% | 65.5% | 66.4% |
| Operating loss | $1.2 million | $6.0 million | $6.8 million | $11.8 million |
| Net loss attributable to stockholders | $1.0 million | $5.4 million | $4.5 million | $11.4 million |
| Loss per share, basic and diluted | $0.03 | $0.16 | $0.13 | $0.33 |
- Revenue mix: Q2 Advanced Energy sales grew 40.1% to $11.7 million; OEM sales declined 4.2% to $1.8 million. For the first half, Advanced Energy grew 11.6% to $21.4 million and OEM grew 19.2% to $4.3 million.
- Margins and costs: Q2 gross margin improved, primarily from a greater Advanced Energy share of sales. First-half gross margin declined, mainly due to segment and product mix. First-half professional services expense fell 28.7%, while SG&A rose 6.3%.
- Cash flow: Cash used in operations was $6.7 million in the first half, versus $10.4 million in 2022. Investing activities provided $7.0 million, principally from the facility sale; financing activities provided $8.2 million, principally from borrowing proceeds net of issuance costs.
- Liquidity: Cash and equivalents were $18.5 million at June 30, up from $10.2 million at year-end; working capital was $33.9 million. The credit agreement requires at least $10 million of cash. The company had about $8 million available on its revolving facility and had drawn none as of June 30.
- Debt: The company borrowed $10 million under a senior secured term loan, reported net at $8.9 million after unamortized costs and discounts. The floating term-loan rate was 12.6% at June 30. The loan is presented as current because of a subjective acceleration clause and recurring losses. The facility also includes up to $15 million of additional term-loan tranches, subject to conditions including revenue targets.
Material changes and unusual items
- Q2 sales increased 31.8%; first-half sales increased 12.8%. Management attributed Advanced Energy growth to domestic generator upgrades to the Apyx One Console, introduced in January 2023, higher average selling prices for new generators, and increased handpiece sales. First-half international sales declined 8.1%, partly reflecting weaker demand after the FDA’s 2022 Safety Communication.
- Q2 and first-half operating results included a $2.7 million gain from the May sale-leaseback of the Clearwater facility. The company received approximately $6.6 million in net proceeds and entered a 10-year triple-net lease, with first-year fixed annual rent of $619,500 and 4% annual escalations.
- First-half income tax benefit of $2.2 million reflected reversal of approximately $2.1 million of uncertain-tax-position liabilities after completion of the IRS examination of 2018–2020 returns. On August 10, 2023, after quarter-end, the company received $8.1 million from the IRS, including approximately $0.4 million of interest.
- Management reported a January 2023 U.S. workforce reduction of 14% and other expenditure controls. It also reported FDA clearances in February and April 2023 for additional Renuvion APR Handpiece uses; the FDA updated its Safety Communication in May. Management believes the update addresses the original communication, but offers no assurance that the effects on demand will be mitigated.
Outlook, risks and contingencies
- The filing gives no specific management revenue or earnings forecast. Credit-agreement minimum trailing-12-month Advanced Energy revenue targets are $49 million for 2023, $60 million for 2024 and $70 million for 2025; the company reported covenant compliance at June 30, 2023.
- The company has incurred recurring losses and operating cash outflows and anticipates near-term losses. The filing states these conditions raise substantial doubt about the company’s ability to continue as a going concern for at least one year from issuance. Management believes its financing, cost-management and other plans alleviate that doubt; this remains dependent on execution and future performance.
- Risks include the impact of FDA communications and product clearances on adoption, continued operating cash burn, debt service and covenant requirements, and global supply-chain and inflation pressures. Management said supply-chain effects had not been material to date but future effects remain uncertain.
- Product-liability matters include two related cases involving ten plaintiffs, with a probable estimated loss range of $1.45 million to $2.4 million; the company accrued the minimum and says a change in the actual loss is possible. It also disclosed a dispute with an insurer over coverage. A securities class action and a derivative suit were dismissed and closed in July 2023. Purchase commitments totaled about $3.3 million, substantially all expected within 12 months.
Key facts for investors to verify
- Whether sales growth and the recent Renuvion clearances translate into sustained adoption, especially in international markets.
- Cash burn, post-quarter IRS refund proceeds, and available liquidity after the $10 million minimum-cash requirement.
- Ability to meet credit-agreement revenue covenants and service high-interest secured debt; confirm conditions for accessing additional loan tranches.
- Future costs or coverage outcomes for product-liability claims and other contingencies.
- Durability of reported earnings improvement excluding the one-time sale-leaseback gain and tax-related benefit.